Hi everyone, good to finally have some discussion/participation associated with John's website. I'm also an Xer, and computer scientist. I think John has a lot of valuable insights, which is why I visit the site, but I also find myself disagreeing with him all the time. I've been an on & off reader for several years.
John if you want me to move this post to some area other than this "welcome" thread I'd be more than happy to, or you can do it yourself...
I think quite frankly, John and probably most of you guys, are excessively gloomy. Don't get me wrong, I'm fully on broad with the premise of the credit crisis leading to possible depression and maybe even 80%+ declines in our stock indexes, and a rise in unemployment. We've gotten a taste of this recently, not many would have believed that so many big name institutions (Lehman, Merril, AIG, Fannie, Freddie, etc) some that have been around in excess of 100 years, would all be gone within a few weeks this year. But we will eventually come out of all this stronger and better off.
John is right in many ways about many things. We ARE living though an amazing, once in a lifetime event. It is no longer just something "crazy" doom & gloomers are talking about, its right here, right now. But it WON'T be the end of the world!
As for blaming different generations - I don't see the point. Over the past 5 years, lenders & investors threw all historical prudent practices/standards out the window buying into the ridiculous premise that house prices can only go up (they hadn't gone down in 80 years!). As an aside I'm reminded of the popular mantra that "you should always be fully invested in the S&P 500 because its never gone down over any 20 year period in history" - these people are in for a rude awakening too although its true that we still may not have a 20 year down period especially when future inflation is factored in. With the lessons learned from our grandparents' generation wiped out of memory, lenders threw out all prudence, and investors bought into it too. Investment firms took on tremendous leverage for all of the same silly reasons - and they thought they could make a lot of money. Does it matter how old different people were that work in these industries? Gen-x and babyboom hold the vast majority of jobs in the economy right now. So taking on all this leverage and risk turned out to be a mistake, and now the unwinding of the great credit bubble is well under way. Most people probably don't see what is ahead, and they have no idea how the failure of these firms will affect them. It won't be pretty, you can be sure of that. But to repeat, it also won't be the end of the world, it won't lead to the overthrow of the US government or massive public uprisings, or a world war, or mass starvation.
Even in the 1930's great depression, there was still 75% employment (don't the numbers sounds so much better when you turn them around?). But what we are going though now is much closer to what Japan went though recently. They had a real estate and stock market bubble of epic proportions - which topped around 1990. This ushered in a 13 year bear market in which real estate prices fell almost continuously, and their stock indexes fell over 80%. And yet though all of this, they never exceeded 6% unemployment! There was no mass starvation, etc. They tightened their belts and went into savings mode.
To the folks stockpiling food - OK I'm just as interested in preparing for the worst as most of you. I was a boyscout, and remember the motto (be prepared). But seriously, WHAT do you think is going to happen to disrupt the food supply - how is it even related? It AIN'T gonna happen, so there is no need to look like a crazy person scaring your friends, family, and neighbors with wild fantasies of a world ruled by chaos, guns, and gold. The only way food production would be disrupted is if there was an unprecedented nationwide crop failure most likely from drought and there is no reason to believe the risk of that is any higher now than it has ever been in the past. Personally I started growing a lot of my own food, as much for fun/hobby/exercise as for anything else. I've got 18 fruit trees now, a massive strawberry bed, potatoes, hops (gotta have beer when times get tough), raspberries, watermellon, pumpkin, onions, rhubarb, tomatoes, mushrooms, etc. Growing food can be done on a surprisingly small plot of land, even in an urban environment. Check out
these guys, they have a step by step plan and demonstration farm showing how you can grow $50,000+ worth of produce on a 1/2 acre! Personally I've also learned to heat my house with free renewable fuels and have been doing so for the past two years. I've build up my savings, and have no house/car debt. I do believe in getting ready for hard times, but you can go overboard.
Which leads me to talk about FDIC insurance. I think John has gone WAY overboard in this regard. It does NOT MATTER how much funding there is in this insurance pool, because its backed by the full faith and credit of the US government. The government can and will put any amount of money necessary into these programs in order to support confidence in the financial system (at the sake of future inflation, which they really do not need to worry about in the short term due to the massive deflationary influence that a bursting credit bubble has). To state this bluntly, the US government CANNOT technically go bankrupt, they can borrow ANY amount of money at ANY time, this is the beauty (and downfall) of fiat money! They just announced basically a trillion dollar bailout plan - where do you think this money comes from? They don't have to worry about it at all, one wave of the pen, and boom, its done. Longer term (several years down the road?) there will be inflationary consequences to this path. But your FDIC insured funds are COMPLETELY safe. Here's a bit of advice you won't hear anywhere else - afraid your bank might go under?? Move your money to a bank that ALREADY went under! Yes - this sounds crazy at first, but I know several smart but risk averse people that are doing just that - for instance Indymac which was taken over by FDIC a couple months ago, has better rates on CDs than anyone else - no reason NOT to park cash there, they will match ANY published rate, and the government will guarantee all interest payments to you. You won't have to worry about what will happen if they go under because they already did! Haha, I know it sounds ridiculous, but its true, your only risk of losing money is via inflation as long as you are under FDIC insured limits (which by the way is a MINIMUM of $100,000 not a MAXIMUM of $100,000, a family can easily park $1million+ fully insured in a single bank you just have to set the accounts up correctly).
If you want to own gold, perhaps as a hedge against future inflation, which I think is perfectly rational - DON'T be stupid and pay ridiculous commissions like 10% to buy and 10% to sell, or store physical gold someplace where it can be stolen. You are probably better off buying GDX or GLD (gold mining index, or gold itself as a very liquid exchange traded fund). Use a broker that's in a strong position, Schwab instead of E*Trade for example, but really you don't have to worry about your broker going under, your funds are not commingled with the funds of the broker itself, your account is always considered an asset, and the assets are always transferred to a stronger firm, usually without disruption, in the event of a broker going under.
I think John and probably most of you guys - underestimate the power of exponential technology development. This is ESPECIALLY annoying considering John is an IT guy (and many of you are engineers) and is well aware of and often talks about "the singularity". There is basically NOTHING short of a world ending meteor impact, that can take away the productivity gains we have received though technological advancement. This does NOT mean that the economic cycle has ended - but it DOES mean that the extremes should be less severe. I think many of you would be interested in Ray Kurzweil's speeches and books on this subject. Most people cannot really comprehend exponential advancement, heck even I have a hard time envisioning it. Things like
radical life extension(
http://www.methuselahmouse.org/) are probable, unlimited and nearly free renewable energy is likely, mechanization of all common "work" will make it possible for humans to pursue whatever they want to do with their lives with no care about money or basic survival -- all of this could REALLY happen in as short a time frame as 30-50 years. People do not realize how much has happened in just the last 10-20 years, there were more patents issued than in the previous 100 years:
That is the power of compounding! And it isn't going to stop! We have a LOT of amazing and POSITIVE things to look forward to in the future, during OUR lifetimes. Today's economic stress will not significantly alter the pace of exponential technological gains. This is something that Kurzweil specifically speaks about in a somewhat recent speech for the longnow foundation, available here:
http://video.google.com/videoplay?docid ... 0251309257
or podcast here:
http://longnow.org/projects/seminars/podcast.php
John is also completely wrong in his Malthusian views of population growth. The earth's population is well under control and will ultimately be able to support MUCH higher numbers (2, 3, 4 times today's population). Again technology will win in the end. In nearly all developed 1st world countries, population levels are stable if not falling - some experts actually believe that the slowing of population growth is a bigger threat than the opposite. Have you guys ever looked at a globe? How about google earth? Did you know you could give every family in America a full acre of land in Texas and not only would there still be lots of land left in Texas, but the rest of the country would be entirely uninhabited by people - the United States is mostly wilderness! The Earth itself is over 75% covered in water, I can easily envision a time when fully automated greenhouses spread out over vast tracks of the ocean, converting sea water to fresh water and producing food and fuel for the world. Basic food ingredients for billions of people will be automatically produced and delivered with little or no human intervention - those ingredients will be delivered to processing facilities, again fully automated - which will produce amazing quality and variety of food for all in abundance, using nothing but renewable energy. These systems will self expand as necessary to meet demand.
We will also have radically different transportation, probably vertical take off and landing vehicles controlled by GPS-like navigation (no driving, nearly 100% safety too with redundant systems, anti-collision technology, etc), traveling at jet speeds, all on renewable fuels that will be nearly free - we will be able to travel anywhere in the country or world easily with no traffic, you'll take weekend getaway vacations to the islands or anywhere else with no lines, waiting, or expensive airplane tickets. You'll be able to live almost wherever you want with easy commutes, etc. All common diseases will be cured. Technology will exist to deliver unprecedented pleasure and euphoria to anyone anytime they want it, with no negative side effects.
We'll be living in this utopia, but people like John will still not be happy, he'll be worried and warning everyone about the robots that are about to exterminate us! And you know it won't be any different then than it is now - a little grain of truth, something to worry about, its always going to be with us!!
Best wishes to all,
Gordo